Before your company signs a commercial contract in Kuwait, read what the Kuwaiti Civil Code (Decree-Law No. 67 of 1980) says about the moment a contract is born and what makes it valid. The most expensive disputes often start from assumptions about formation that the law does not share. This article explains the rules as the legislator wrote them, from our office in Kuwait. Article numbers refer to the Civil Code. Related guides are linked at the end of this article.
When the contract is born
Article 32 provides that a contract is concluded as soon as offer and acceptance connect, if it concerns a subject matter and rests on a cause that the law recognizes, and without prejudice to any special form the law requires in particular cases. Exchanging intentions is therefore not enough. The subject matter and cause must be lawful, and any statutory formality still applies.
On form, Article 65 says that agreement need not take any particular form for a contract to be concluded unless the law provides otherwise, and that a contract for which the law requires a form is void if the form is not observed. Under Article 66, if the parties themselves make a form a condition of the contract, neither may rely on the contract without the other's consent unless the agreed form is used. Where there is doubt whether a required form goes to the existence of the contract or to something else, Article 67 says it must not be treated as a condition of existence. Article 69 extends a required form to a promise to contract and to later agreements that change the contract's effects.
Offer: when a price list is not an offer
Under Article 39, an offer is a proposal that shows the intention to conclude the contract as soon as the other side accepts, and it must state at least the nature of the contract and its essential terms. Article 40 allows an offer to be made to unspecified persons if the identity of the other party does not matter, and treats the display of goods with their prices as an offer, without prejudice to trade practice. Publication, advertising and the distribution of current price lists, and any other statement about offers or requests directed to the public or to particular people, do not count as an offer under the same article, unless the circumstances show otherwise.
The offeror may withdraw the offer as long as it has not been joined by acceptance. If the offeror fixes a time for acceptance, or the circumstances or the nature of the dealing require one, the offer stays open for that period and lapses when it passes (Article 41). An offer lapses on the death or loss of capacity of the offeror or the offeree (Article 42), and an acceptance lapses if the acceptor dies or loses capacity before it reaches the offeror (Article 45).
The mirror rule: a qualified acceptance is not an acceptance
Article 43 gives the offeree the choice to accept and requires that the acceptance conform to the offer for the contract to be concluded. If the reply adds to the offer, subtracts from it or changes it in any other way, it counts as a rejection containing a new offer. Someone who answers a commercial offer with "accepted, subject to minor amendments" has accepted nothing. They have made a counter-offer, and the contract does not yet exist.
Silence, correspondence and the moment of conclusion
Article 44 (as amended by Law No. 15 of 1996) says that no statement is attributed to a silent person, but silence where a statement is needed counts as acceptance. It adds that silence counts as acceptance in particular where there was earlier dealing between the parties and the offer relates to it, or where the offer is purely for the offeree's benefit. A buyer's silence after receiving the goods bought and the price list counts as acceptance of the terms in that list. In a continuing business relationship, ignoring a written offer can therefore create an obligation.
For offers made by correspondence, Article 48 keeps the offer open for the period the offeror fixes or, if none, for the period the circumstances need for it to reach the other party, for the answer and for the acceptance to arrive. Article 49 treats a contract by correspondence as made at the time and place where the acceptance reaches the offeror's knowledge, unless otherwise agreed or required by law or custom. Under Article 50, a contract by telephone or a similar means follows the rule for a contract in the same meeting as to its conclusion and time, and follows the rule for correspondence as to place. Once offer and acceptance connect, the contract binds both parties and neither can withdraw, unless they agree otherwise or the law or custom provides otherwise (Article 47).
If the parties agree on all essential matters and leave secondary matters to be agreed later, the contract is still formed unless they intended otherwise, and the judge decides any secondary point they cannot agree on, according to the nature of the dealing, custom and fairness (Article 52). A letter of intent that lists unresolved essential terms is a different matter and does not meet that test.
Standard terms
Under Article 51, if the parties agree that a model contract or standard regulations govern their relationship, those terms apply unless a party proves that when the agreement was made he did not know them and had no opportunity to know them. If the unknown terms are essential, the contract is void. If they are secondary, the judge decides the disagreement. A party that sends a short signature page and refers to terms it has not provided runs this risk.
Consent, capacity and its defects
Article 33 requires the will to exist when the act is made and to be expressed. Article 34 allows expression by words, writing, a commonly used sign, a mutual exchange that shows agreement, or any other position whose meaning the circumstances leave no doubt about. Article 83 says consent is valid only if it comes from a person with capacity and free of defects. The age of majority is twenty-one full Gregorian years (Article 96). In dealings with a company, check the signatory's authority separately, below.
The Code lists four defects that make a contract voidable:
- Mistake (Articles 147 to 150). A party who consented because of a mistake, so that he would not have consented otherwise, may ask for annulment only if the other party shared the same mistake without any influence from him that could have been avoided, or knew of it, or could easily have discovered it. In donations, annulment may be requested without regard to the other party's shared mistake or knowledge (Article 147(2)). A mistake about the law counts as well, but a party may not rely on his mistake in a way that conflicts with good faith, and a calculation error or slip of the pen does not affect validity.
- Fraud (Articles 151 to 155). Deceit that induced the contract allows annulment if the party proves he would not have agreed on those terms without it. Article 152 treats lying about the facts and circumstances of the contract, or keeping silent about them in breach of a duty of honesty or candor that the law, the agreement, the nature of the dealing or special trust imposes, as deceit. The deceit must come from the other party or someone connected to him, and deceit by a third party counts only if the other party knew or could have known of it. In donations, Article 154 permits annulment for deceit regardless of who used the deceit.
- Duress (Articles 156 to 158). Consent given under fear that was wrongfully caused, of serious harm to the person or to a third person in life, body, honor, reputation or property, may be annulled. Under Article 157, the duress must come from the other party, his representative, follower, intermediary or beneficiary; if it comes from a third party, annulment is available if the other party knew or must be presumed to have known of it when contracting. In donations, Article 158 permits annulment regardless of who caused the duress.
- Exploitation (Articles 159 to 161). If a person exploited another's pressing need, evident recklessness, obvious weakness, uncontrolled desire or moral authority to obtain a contract with a gross imbalance between what he must perform and what he gets, the judge may reduce his obligations, increase the other party's, or annul the contract. The claim lapses one year from the contract (with a later start where the exploitation was of desire or moral authority) and in any case after fifteen years.
Mere inequality in value that results from none of these has no effect on the contract unless the law says so (Article 162).
Signing through a representative
Article 53 allows a contract to be made through a representative unless the law requires the principal to act personally. The representative's authority follows the instrument of representation (Article 54), although, where the representation arises by agreement, a principal who publicly announces his representative's authority, or notifies it to a person, is bound toward those who rely on it even if it exceeds the instrument. The instrument need not take the form the law requires for the act itself unless the law says so (Article 55). When the representative contracts within his authority in the principal's name, the effects pass directly to the principal (Article 57). If the representative does not disclose that he acts for the principal, the other party cannot be forced to treat the principal as his counterparty unless he knew or should have known of the representation or did not care (Article 58), and otherwise the representative is personally bound (Article 59). Under Article 60, for representation by agreement, a contract made in the principal's name after the authority has ended still binds the principal toward a counterparty who, with the representative, did not know and could not have known that the authority had ended. In practice, ask for the power of attorney or a commercial register extract, and read its scope.
Earnest money in Kuwait: the price of walking away
Article 74 says that paying earnest money when the contract is made means that each party has a right to withdraw, unless it appears they intended otherwise or custom provides otherwise. Article 75 says that if the payer withdraws he loses the earnest money, and if the recipient withdraws he must return it and pay its equivalent, in all cases without regard to the damage the withdrawal causes. Article 77 treats impossibility of performance that is attributable to a party as the exercise of the right to withdraw, with his liability limited to the earnest money, and requires the earnest money to be returned to the payer if the impossibility comes from a foreign cause that neither party controls. Many foreign parties expect earnest money to be a firm commitment. In Kuwait it is the default price of the freedom to leave, unless the contract says otherwise.
Contracts of adhesion
Article 80 says a contract is not prevented from forming because one party accepted by submitting to a draft that the other side prepared in advance and refuses to discuss. Under Article 81, if such a contract contains arbitrary terms, the judge may, at the request of the adhering party, modify them to remove the unfairness or release him from them entirely, even if he knew of them, and any agreement to the contrary is void. Article 82 says that in contracts of adhesion doubt is always interpreted in favor of the adhering party. A drafter should therefore expect its one-sided terms to be tested, and an adhering party should know that the court has this power.
What we review before you sign
We review the subject matter and cause of the contract, the chain of offers and replies and which one formed the contract, any earlier dealing and its effect on silence, whether a required form applies, the signatory's authority, the earnest money clause, and standard and adhesion terms. We rewrite ambiguous terms because, under Article 194, unresolved doubt is read in favor of the party whom the term would harm, particularly the debtor if the term would charge him with the obligation or make his burden heavier, without prejudice to the protection of the adhering party under Article 82. We deliver this service from our office in Kuwait.
Read also: Bounced Cheques in Kuwait: Complaint and Holder Rights | Saudi Commercial Contracts: Civil Transactions Law Guide | Commercial and Corporate Law in Kuwait
Frequently asked questions
Does a qualified acceptance form a contract in Kuwait?
No. An acceptance that does not conform to the offer counts as a rejection with a new offer. The contract forms only when a conforming acceptance reaches the other side (Article 43).
Is earnest money always lost if I withdraw?
By default, earnest money gives each party the right to withdraw. The payer loses it, and the recipient who withdraws returns it and pays an equal amount, unless the parties intended otherwise or custom provides otherwise (Articles 74 and 75).
Can silence count as acceptance in business dealings?
Yes. Silence where a statement is needed counts as acceptance, in particular where there was earlier dealing between the parties and the offer relates to it (Article 44).
Can a Kuwaiti court change unfair terms in a standard form contract?
Yes, in a contract of adhesion, at the request of the adhering party. The judge may modify or cancel the arbitrary terms, and any agreement to the contrary is void (Article 81).
Is a signature by an employee or agent enough?
It binds the company only within the representative's authority, with the exceptions in Articles 54 and 60. We check the instrument of authority before signing.
Do you review commercial contracts in Kuwait?
Yes. From our office in Kuwait we review contract formation and terms before signing and in disputes.